LIA's Monthly Economic Report: Positive Economic Performance for the U.S.

By: Dr. John A. Rizzo

"As the Long Island Association's new Chief Economist, I am happy to submit my first monthly Economic Report to the LIA Board of Directors and the LIA Membership. I am looking forward to providing these reports to you on the state of the national and Long Island economies and would value any feedback you may have to make these reports useful to your organization realizing you likely get daily economic data from other sources. Thanks." - Dr. John A. Rizzo

Economic performance has been largely positive in the U.S. during the past several months. The unemployment rate fell to a four­-and-­a­-half-year low of 7.4% in July 2013. The housing sector has shown improvement despite a recent rise in mortgage rates, and consumer confidence and spending have been on the rise. Inflation has remained quite low, leaving the Federal Reserve Board room to continue its stimulus activities. However, the improved performance of the economy may induce the Fed to cutback on its asset purchase program, perhaps as early as this fall.

The economy added an estimated 162,000 jobs in July, decreasing the unemployment rate from 7.6% to 7.4%. In part, however, this decline reflects a drop in the labor force participation rate; that is, workers no longer seeking jobs. And at least half of these jobs appear to be part-time employment.

Most of these job increases were in the service sectors, with Retail Trade, Leisure and Hospitality and Business Services showing strong gains. Goods producing industries experienced modest gains, with losses in construction employment more than offset by growth in manufacturing. Employment grew in the government sector, reversing a trend in declining government employment. These gains occurred at the local level, with state and Federal employment continuing to decline.

Real wages; that is, wages adjusted for the effects of inflation, have been declining for many years. Given the extremely low levels of inflation, however, real wages are beginning to stabilize. Average hourly earnings declined by just 2 cents in July, following a 10 cent increase in June.

Jobs growth in the U.S. economy remains less than stellar. Nevertheless, roughly 1.2 million jobs have been added in the past six months. Survey evidence from the National Association for Business Economics also suggests that companies are increasingly confident that modest growth in the economy will continue. Moreover, low inflation rates suggest that the Federal Reserve has room to continue its stimulus program. Thus, one can anticipate continued growth in employment.